re: What tax deductions will Romney eliminate in order to pay for his tax cuts?(Posted by Tiger n Miami AU83 on 10/4/12 at 3:35 pm to glaucon)

quote:can we move past the MSNBC talking point?

It is a bit more than a talking point. In fact it is the single biggest/most important issue or item in this entire election and neither Romneys explanation (or lack thereof) or math makes any sense whatsover.

re: What tax deductions will Romney eliminate in order to pay for his tax cuts?(Posted by Decatur on 10/4/12 at 3:40 pm to tigerfoot)

quote:We’ll start with the $5 trillion tax cut mystery. At the beginning of the debate, Mr. Obama charged that Mr. Romney’s economic plan calls for a tax reduction of that dollar figure, and that one of the “central questions of the campaign” is how the former Massachusetts governor will pull that off without shifting more of the US tax burden onto the middle class.

Romney said flatly “I don’t have a $5 trillion tax cut.” He said the US should provide tax relief to the middle class, without reducing the share of taxes paid by high-income people.

What’s the story here?

It is true that a central facet of Mitt Romney’s economic plan is a 20 percent across-the-board reduction in marginal tax rates, plus elimination of the estate tax and the alternative minimum tax (AMT). Do the math on how much money the federal government would forgo as a result of this, and it’s about $456 billion a year. Over 10 years, that rounds up to $5 trillion. That's the calculus behind the "$5 trillion tax cut" figure that Obama cites.

However, that’s only part of the tax plan. Romney has said he would make his overall tax changes revenue-neutral. He’d hack out deductions, exemptions, and other exclusions to broaden the tax base, for one thing. For another, he says that lowering marginal rates would increase economic activity, and hence tax revenue. These changes would counterbalance any revenue lost from rate reductions, according to Romney.

Those are ambitious goals, and Romney hasn’t provided more than hints about which deductions and exemptions he’d try to get rid of. Without such specifics to go on, the nonpartisan Tax Policy Center ran the numbers on Romney’s plan, and decided they just don’t add up. A revenue-neutral tax reform that includes 20 percent marginal cuts, no estate tax or AMT, gets rid of a substantial portion of deductions, and keeps existing tax breaks for investments (as Romney has said he would) ends up shifting about $86 billion in annual tax costs onto the middle class, it reported.

re: What tax deductions will Romney eliminate in order to pay for his tax cuts?(Posted by ottothewise on 10/4/12 at 3:42 pm to Decatur)

quote:For another, he says that lowering marginal rates would increase economic activity, and hence tax revenue. These changes would counterbalance any revenue lost from rate reductions, according to Romney.

quote:The main conclusion is that under plausible assumptions, a proposal along the lines suggested by Governor Romney can both be revenue neutral and keep the net tax burden on the upper income classes about the same. That is, an increase in the tax burden on lower and middle income individuals is not required in order to make the overall plan revenue neutral.....

At the same time, the TPC model assumes that regardless of the tax rate, people work the same amount, save the same amount, and invest the same amount. Thus, changes in the tax code have no effect on the amount of before-tax income.4 Because these so-called macro-dynamic behavioral responses are zero, no analysis of tax reform can ever show an increase or decrease in the total level of income in the economy. It follows that the revenue effects of any such changes are constrained to be zero.....

As just noted, I think that for the 2012 law baseline, the low end of the range in the table, 3 percentage points, seems a reasonable figure. This is associated with a $25 billion dollar increase in revenues. Now let’s sum things up. For the over $100,000 group, the reduction in revenue because of rate cuts is about $144 billion; the increase in revenue due to base broadening is $200 billion; and with a 3 percentage point growth assumption, the additional revenue from a rise in incomes is $25 billion.15 The net impact is a positive $81 billion....

The second row shows analogous computations for taxpayers with incomes of $200,000 or more. Again assuming a 3 percent growth rate, members of this group would pay about $29 billion (or 6.5 percent of current revenues) more in taxes.

Now let's hear the cries that 3% growth is pie in the sky and unheard of.

re: What tax deductions will Romney eliminate in order to pay for his tax cuts?(Posted by glaucon on 10/4/12 at 3:50 pm to CptBengal)

Look, I can make a great case for Obama if I am just allow to assume that just him being in office and whatever policy he proposes will create great economic growth numbers. That is what you are asking us to believe with Romney's economic plan.

re: What tax deductions will Romney eliminate in order to pay for his tax cuts?(Posted by Decatur on 10/4/12 at 3:50 pm to MFn GIMP)

quote:Harvey Rosen, a public finance expert at Princeton, argued that the Romney tax plan will increase economic growth dramatically, which in turn would raise revenue and negate the need for tax increases on the middle-class. He finds that if the Romney plan increases economic growth by 3 percentage points relative to where it would be under current policies — a huge, and many economists think implausible, boost — then Romney’s numbers might work out. But behind his analysis lurk two assumptions that might not add up.

Rosen bases his growth estimates on a study of Romney’s plan done by Rice economist John Diamond. Diamond assumes that Romney’s plan is implemented under conditions of full employment. That’s important because it means that if you eliminate tax breaks for one industry and they have to fire workers, those workers can relatively easily find jobs in another industry. But barring a miraculous labor market recovery in the next few months, that won’t be the situation when Romney takes office. In the current world, wiping out tax breaks for an industry could lead to displaced workers who simply join the ranks of the unemployed, dragging down growth.

But more damaging for Rosen’s case is that Diamond’s study assumes that Romney’s plan is revenue-neutral before you take economic growth into account.* That is, Diamond assumes that the tax cuts have been fully paid for first, and that’s part of why they do so much for growth. Rosen, conversely, is making the case that you don’t need to fully pay for the tax cuts because growth will fill in the gap. So the Diamond-Romney tax plan and the Rosen-Romney tax plan are quite different, and growth estimates that apply to the first don’t necessarily apply to the second.